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Small businesses wary of health care reform law

Small businesses will be among the first in line to take advantage of provisions under federal health care reform. President Obama hailed the tax credits designed to make health plans more affordable. But some business owners say the tax credit doesn't reduce the cost of health insurance enough.

Russ Hoglund, owns a metal fabrication shop in Superior, Wis., and doesn't offer health insurance for his workers. Hoglund says he doesn't see how he could afford to -- even under the new law.

"It's going to be a very big nut to crack," Hoglund said. "Actually, I don't know how I'm going to do it."

With 18 employees, Superior Steel is small enough so it doesn't have to provide health insurance under the Patient Protection and Affordable Care Act. But, if the company should offer a health plan, its tax bill would shrink.

Small companies that qualify can get a tax credit of 35 percent of their contribution to a health plan. For a company the size of Superior Steel, the credit would be something less than 35 percent.

Whatever the percentage, Hoglund's not convinced. Times have been tough. Some of his workers are still on layoff, and a tax credit may not be worth much if you have no taxable income.

"You have to show a profit, and if you show a small profit or a big profit," said Hoglund. "How do you predict? How do you plan for that?"

“I don't think anybody expects this bill to work perfectly from the get-go.”

Bill Frenzel, Tax Policy Institute

Hoglund used to provide health insurance. But he dropped it a couple of years ago, giving his workers a raise and encouraging them to purchase individual policies. Some, he knows, haven't done that.

And that's not unique. According to the federal government, the portion of small businesses offering health insurance has dropped 11 percent -- to less than half.

Some business owners, like Joe Meese, aren't sure that's going to change. Meese runs Prescription Specialties Pharmacy in east Duluth. He has three employees, without health insurance.

"We haven't been able to afford it," he said. "In small business, it's going to be another burden which [has] got to come from somewhere, and consumers will end up paying for it in the end."

Meese's small business would qualify for the maximum 35 percent credit. Health reform could bring his pharmacy more business, but he says the tax credit still would not be enough.

"[It] takes a little bit of the sting out of it, but there's still another 65 percent that's got to come from somewhere," said Meese.

Even those offering insurance are unsure how much the credit will help. Michael Zakula, an orthodontist in Hibbing, pays for a health plan for his eight employees. He supports health care reform.

But Zakula wonders how important a 35 percent credit will be against premium costs that shot up more than 23 percent last year alone. And he wonders how increasing the number of insured will work to control costs.

"I'm worried about what may happen to our premiums, as the insurance companies are going to be forced to take care of more people, and people with more needs than they have in the past," said Zakula.

Tax credits can be a powerful incentive, according to former U.S. Rep. Bill Frenzel of Minnesota, a guest scholar at the Washington-based Tax Policy Institute. But Frenzel says incentives won't work for every business.

"I think it'll be a help. But I don't think anybody expects this bill to work perfectly from the get-go, and that they're going to have to make some changes in it," said Frenzel. "Whether those incentives have to be moved up or down or whatever, I don't think we know yet."

He says first, Congress will have to watch and see what the small business reaction might be, and then act on the measure accordingly.